Epsilon Energy, the small-cap energy company known for its under-the-radar operations, may be sitting on a goldmine of profit in its Marcellus Shale assets. While the energy sector is fixated on the Permian Basin, Epsilon is quietly stockpiling vast quantities of natural gas, strategically delaying production to capitalize on a potential price surge in the coming year.

This calculated gamble was subtly revealed during the Q1 2024 earnings call (Source: Epsilon Energy Q1 2024 Earnings Call Transcript). Epsilon casually mentioned seven completed wells, representing 0.7 net to the company, "likely not begin production until natural gas prices improve sustainably." Furthermore, their operating partner has curtailed production in the Auburn area by a staggering 4.5 million cubic feet of NRI production *per day*. These are not insignificant figures. We're talking about effectively doubling Epsilon's current Marcellus production, which is currently being held back.

This is where the "bombshell" hypothesis comes into play. Epsilon's management, known for their conservative hedging strategy and long-term outlook, appears to be wagering on a significant natural gas price rebound in early 2025. The earnings call states that current estimates for first production from these deferred wells are "early 2025," a timeframe suspiciously aligned with the projected return of curtailed production "as prices improve."

Let's crunch some numbers. Assuming a conservative natural gas price of $4/MMBtu (a level many analysts believe is attainable with anticipated demand growth and supply constraints), the seven deferred wells, once operational, could generate around $10 million in annual revenue for Epsilon. Factor in the returning 4.5 million cubic feet/day of curtailed production, and that's an additional $6.5 million annually.

This translates to a projected $16.5 million increase in annual revenue from the Marcellus alone, more than doubling the segment's current earnings. Given Epsilon's modest market cap of $119 million, this potential revenue explosion could dramatically alter their profitability and growth trajectory.

Factors Driving the 2025 Price Surge

Epsilon's confidence in a 2025 price surge seems to stem from a convergence of factors. Major operators have announced production cuts and capital expenditure reductions for 2024, indicating a tightening of supply. Concurrently, the demand for natural gas is steadily increasing, especially in the power generation and liquefied natural gas (LNG) export sectors. This confluence of shrinking supply and burgeoning demand could propel prices upward in the coming year.

Projected Marcellus Revenue Growth (Hypothetical)

The following chart illustrates the potential impact of deferred production and returning curtailed production on Epsilon's Marcellus revenue in 2025.

Epsilon's gamble on the Marcellus could be a stroke of genius in contrarian investing. While the market is currently captivated by the Permian project, the sleeping giant in Pennsylvania may be on the verge of awakening, and Epsilon will have a front-row seat to the show.

"Fun Fact: Epsilon Energy is one of the few small-cap energy companies that has consistently paid dividends for over five years, demonstrating their commitment to shareholder returns even during market fluctuations. This track record, coupled with their strategic asset management, makes Epsilon a company to keep a close eye on."